Facebook is probably paying an arm and a leg for its new carrier-enabled, mobile web payments system
Now that Facebook finally unveiled carrier-powered payments for the mobile web yesterday, it’s time to look at what the potential costs might be. Last month, U.K.-based mobile billing and analytics provider Bango announced to shareholders that it had a new partnership with Facebook, but that it couldn’t disclose the terms. Bango powers billing for app stores and also has a deal with Amazon.
Here are Bango’s standard payout rates for the carrier partners Facebook mentioned yesterday. (Important note: These are not Facebook’s actual rates. These are Bango’s standard rates. It is likely that because of Facebook’s clout and scale, the company wrests slightly more favorable terms. Bango’s chief executive Ray Anderson actually gives some color in the comments below. But this should give you an idea of how expensive the carrier’s cut is for Facebook.)
AT&T – 60%
Deutsche Telekom – Unknown, because Deutsche is not a Bango partner.
Orange – 83%
Telefónica – 55%
T-Mobile USA – 57.5%
Verizon – Unknown, because Verizon
is not a Bango partner.is only available to Bango’s strategic partners.
Vodafone – 79.2%
KDDI – Unknown, because KDDI is not a Bango partner.
SOFTBANK MOBILE Corp. – Unknown, because Softbank is not a Bango partner.
Since Facebook pays out a 70 percent revenue share to developers, any time a carrier remits less than 70 percent, Facebook is taking a loss on facilitating these transactions. When you factor in the research and development costs of building the mobile platform, it’s almost certain the company will be losing money on this area of the platform for some time.
Update: Bango’s chief executive Anderson gives some helpful context in the comments below. He says that special partners often have better rates. He says that Blackberry-maker Research in Motion uses Bango to power its Blackberry AppWorld and gets 70 percent back from AT&T. That’s better than the normal 60 percent rate listed above. But even if Facebook got 70 percent back from AT&T, it would still mean that the company is taking a loss on these transactions since it pays all of that back to the developer and must still invest in R&D and maintenance for the platform.
Now to anyone in the mobile industry, this really shouldn’t be a surprise. Terms for carrier billing have always been onerous. After losing so much of their power to Apple and Google over the last five years, carriers are maintaining a steadfast grip onto mobile payments — one of their last and most potentially lucrative revenue streams that distinguishes them from being “dumb pipes.” It’s hard to see them giving up revenue share or additional control to Facebook even if it means a better user experience and greater transaction volume.
Facebook has dealt with this in the past as it’s been possible to pay through carriers for Credits on canvas games through the Zong partnership. Google is also in a similar position when it comes to in-app payments on Android via carrier billing.
Facebook users can still pay for Credits by directly entering their credit card information into a web form, thereby keeping the 30 percent revenue share. But that’s often not the best user experience since there are many friction points as people have to go through a multi-step process when entering their credit card numbers. What Facebook announced yesterday is more seamless. In a one-step process, consumers can click to pay with Credits on mobile web apps and have those charges delivered to their monthly phone bills.
But the complexity of setting up a decent mobile payments infrastructure underscores a risk Facebook mentioned in its IPO filing. Facebook acknowledged that increased usage of the company’s mobile products may undermine its financial performance.
“We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected.”
One way that Facebook could make up for these losses is in mobile advertising, which the company just unveiled in a New York-based marketing conference today.